1. Lecture 1 - Introduction & fundamentals Flashcards
Which of the following problems is most likely to prevent successful implementation of the EU’s Greendeal?
A) Free market environmentalism
B) Holdin effect
C) Free-rider effect
D) Holdout effect
D) Holdout effect
Which of the following does not represent the same curve?
A) Demand curve
B) Maximum willingness to pay curve
C) Private marginal benefit curve
D) Private marginal cost curve
D) Private marginal cost curve
Which of the following statements is correct about a shift of the demand curve for gasoline?
A) A decrease in the price of public transportation shift the demand curve to the right
B) An increase in the price for gasoline shifts the demand curve to the right
C) A decrease in income shifts the demand curve to the left
D) An decrease in the price of gasoline shift the demand curve to the right
C) A decrease in income shifts the demand curve to the left
Consider a society with two individuals, who value forest preservation. Which of the following statements is true?
A) Their willingness to pay for forest preservation is likely to be the same as their marginal private benefit
B) Their willingness to pay for forest preservation is likely to be higher than their marginal private benefit
C) The marginal benefits of each acre preserved increase with more preservation
D) Their willingness to pay for forest preservation is likely to be lower than their marginal private benefit
D) Their willingness to pay for forest preservation is likely to be lower than their marginal private benefit
Name 5 important conditions for a market system to lead to welfare maximisation.
- Perfect competition
- Homogeneous products
- Perfect information
- Low barriers to enter and exit
- Rational consumers
- Clear property rights and a legal framework
- Externalities are internalized
- Only governments allocate public goods and common resources
- No monopolies
- No inequality
- Consumer protection
- Environmental regulations
- No transaction costs
- Well-defined property rights
How can a negative externality from production lead to deadweight loss?
- The negative externality means producers don’t internalize costs they impose on other parties.
- Because of this, production is at a higher level that what would be efficient from society’s perspectie
- Deadweight loss is the triangle area formed by the difference between the marginal benefit and marginal cost curves
- It represents a loss in economic efficiency
Provide an example of each of the four types of goods
- Public good: Outdoor air
- Club good: Satellite TV
- Common good: public well in Africa
- Private good: Bottled water
What are opportunity costs?
Benefits you would have obtained from spending your resources in an alternative way.
What determines the slope of the demand curve? + Name 2 influencing factors.
Sensitivity of demand to price changes.
Influencing factors:
- Substitution possibilities
- The share of budget you spend on a product
- The type of good
- Consumer preferences
What may cause a demand curve to shift? (Name 2)
- Change in income
- Changing taste
- Price of a substitute(s)
- Market expectations
- Number of buyers
What determines the slope of a supply curve? + Name 2 influencing factors.
Supply sensitivity to price changes.
Influencing factors:
- Input factors required
- The rate of return on input factors
What may cause a supply curve to shift?
- Technological change
- Costs of input factors change
- Fiscal interference
- Number of producers
Define “negative externality” and provide an example.
Negative impacts of a market transaction affecting those not involved in the transaction.
Example: pollution from a factory.
Define marginal cost and marginal benefit
The cost/benefit of producing or consuming one more unit of a good or service.
Define “equilibrium price”
The market price where the quantity supplied equals the quantity demanded.
Define “economic efficiency”
An allocation of resources that maximizes net social benefits; perfectly competitive markets in the absence of externalities are efficient.
Define “positive externality” and provide an example.
The positive impacts of a market transaction that affect those not involved in the transaction.
Example: a land owner who buys and plants trees.
What does the “social marginal cost curve” show?
The cost of providing one more unit of a good or service, considering both private production costs and externalities.
What is meant with a “socially efficient market”?
A market situation in which net social benefits are maximized.
What is a Pigovian tax?
A per-unit tax set equal to the external damage caused by an activity.
Example: a tax per ton of pollution emitted equal to the external damage of a ton of pollution.
What are the two reasons we should not put a Pigovian tax on all products AND what do economists recommend to do instead?
- Determining the appropriate tax level would be a monumental task
- Administrative costs of tax collection might be greater than the revenue from the tax
- Instead, economists recommend to put Pigovian taxes as far upstream as possible.
